Advantages of Settlement Agreements

July 30, 2018
July 30, 2018 Duncan

Advantages of Settlement Agreements

Been called in for an ‘off the record’ meeting? Not seeing eye to eye with your employer? Been offered a redundancy package? Been told to keep it to yourself? Something been brewing for a while? Then a settlement agreement may be not so far away. In this blog we will highlight some of the advantages of versatile legal documents which resolve disputes in the all-important employer-employee relationship.



  • Confidentiality

All discussions during the negotiation of a settlement agreement are often treated with the strictest confidence or conducted on a ‘without prejudice’ basis. This means that communications cannot then be relied upon in Court.



  • Can be used to conclude employment

Most commonly a settlement agreement will be used in the body of a redundancy situation. They can be useful to itemise a compensation payout to an employee, who in turn foregoes their rights to commence a claim at the Employment Tribunal.



  • Or can be used to resolve a specific employment dispute.

Occasionally, a grievance may be raised during the employment, rather than at redundancy. A settlement agreement can be advantageous where an employer recognises a wrong doing but is keen to conclude it confidentially.


  • Tax free

The first £30,000 of a settlement pay-out may be free of Tax and National Insurance contributions. Any ex-gratia or bonus payments however may not be.


  • Retain a reference

When in a redundancy situation, often it will be possible to negotiate the specific wording of a reference, should one be required in the future.


  • Management fees are realistic

Entering a settlement agreement to resolve an employment dispute is almost always more cost effective, and much less resource draining than commencing a claim against your former employers.


  • Agree to disagree on mutually good terms

The point of a settlement agreement is exactly as the name suggests, to reach an agreement on a settlement, and is entered into by each party on mutually amicable terms. It achieves a clean break between employer and employee with minimal confrontation.


  • Costs are often met by the employer

As a perk, it is important for you to have taken independent legal advice from a relevant legal advisor, such as a solicitor. Your settlement agreement will often contain a clause confirming that the employer shall make payment of the reasonable legal costs associated in seeking independent legal advice.


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